SMPC repeats call for quantitative easing - February 2009

Further rate cuts would have little effect

At its latest (13th January) meeting, the IEA’s Shadow Monetary Policy Committee (SMPC), a group of leading monetary economists that monitors developments in UK monetary policy, decided by six votes to three to hold interest rates at their current level of 1.5%.

While the three dissenting SMPC members unanimously favoured a further 0.5% cut in Bank Rate to 1%, most members of the shadow committee felt that further reductions in interest rates would have little effect on economic activity. Instead, they believed that direct action should be taken to ensure that a slump in the money supply does not cause depression. This direct action should take the form of what has come to be known as ‘quantitative easing’ – for example by the Bank of England creating money to buy bank assets.

Members recognised the dangers of quantitative easing – especially if the UK government started creating money to finance its huge budget deficit. The Committee were also concerned about the effect that quantitative easing would